The majority of the businesses we encounter have their primary purpose rooted in profit. And while profit-focused businesses are significant contributors to the economy, their micro impact is limited. This is why people and groups with a social mission are asking, “What is social enterprise?” and, “How can I build one to make a difference?”
What does it mean to be a Social Enterprise?
There is no universal definition of a social enterprise. Neither is there a unifying guideline of what the social objectives of such an organization should be. These factors are mostly left to the enterprises’ executives to determine. However, according to some popular definitions, there are some things we should come to expect from a social enterprise.
The UK Department of Trade and Industry states that a social enterprise is a commercial organization targeted at social needs3. While they generate profit, we expect that the enterprise invests much of this profit to improve its community rather than maximize shareholders’ returns.
The American academic circle offers a slightly different definition; social enterprises are organizations that achieve social objectives via incomes.
And the Organization for Economic Cooperation and Development holds that a social enterprise is a non-profit organization between public and private departments. And its financial autonomy depends on trading activities.
From these definitions, we can extract a clear understanding of the characteristics and mission of social enterprises.
Characteristics of a Social Enterprise
They are mostly for-profit
A social business is still a business; it collects and records revenue from selling goods and services. A social enterprise can achieve its social mission when it has the financial ability to do so. Therefore, social businesses also focus on finding the right market, meeting their sales goals, and improving their profits.
However, they integrate commercial and non-profit methods.
Unlike other companies that position themselves on clear sides of the divide, a social enterprise will operate using both commercial and non-profit objectives.
Social impact is the primary objective.
Their social mission remains the driving force behind making profit, raising capital, and other commercial activities. A social enterprise still operates within its social objectives. And these objectives differ from enterprise to enterprise.
For example, social entrepreneurs could create enterprises to provide more job opportunities for their communities, provide local services, offer health services at an affordable rate, create training opportunities, and more. What is important is a social and environmental improvement at the same rate at which the enterprise grows.
Why Social Enterprise Matters?
Capitalism serves as a significant driver of economic growth. The simple reason why our global economy has expanded quickly over the past century is trade. People can create goods and services out of their ideas, sell them, and make a profit. Today, the world records an $88 trillion economy.
So with all this money floating around, we should all be good, right? Wrong. As the world gets more affluent, the divide of wealth inequality widens. In 2018, the BBC reported that 1% of the world (by population) held 82% of global wealth. People are growing profits, rather than redistributing it so that everyone has equal access; they are hoarding this money as personal wealth.
Note that although this is just one section of the problems which social enterprises tackle, this problem forms the basis of why we need social entrepreneurs.
While social enterprises have a profit-making structure, what they do with those profits is what makes all the difference. A social enterprise grows its profits to redistribute to communities in terms of microeconomic growth, services, access, and support.
The Three Models
Any social enterprise will (either strictly or loosely) take on one of the following models to achieve its intended social impact1.
#1- The Profit Generation Model
With this model, the social enterprise engages in trading activities that have no social impact. Then, the social enterprise transfers some or all of the profits made from their business activities to another activity with a direct social impact.
#2- The Trade-Off Model
Here, the social enterprise’s profit-making activities and social impact activities are within the same venture. With this model, a social enterprise will manage the trade-off between promoting their business interests while also making decisions to support their social, environmental goals.
#3- The Lock-Step Model
With this model, the social enterprise generates financial returns using a venture that directly correlates to the social impact they are creating. In such a social enterprise, the business activities are the social impact activities, and they will rise and fall at the same pace.
What are some examples of social enterprise?
Every social enterprise has a social mission, the primary problem they aim to tackle in their communities. Here are some examples of such social missions, and some social enterprises working to make a difference in those fields.
Developing rural areas
A social enterprise could focus on bringing development to rural communities. This type of work is often a collaboration between the social enterprise and the local governments or policymakers of those communities. Rural areas often struggle to develop economically. They generate less revenue, have less access to goods and services, and keep losing their workforce to bigger cities. As a result, they may receive fewer allocations from the government or experience a withdrawal of public services2.
In this case, social entrepreneurship is a way to step into a role to solve a problem that the government does not currently consider as a priority.
This social enterprise takes tourists to local sites to offer them authentic experiences. They, as a sustainable tourism business, work with the locals to develop high-quality experiences for visitors. Adventure Alternative also works to develop local social entrepreneurs so the community developments can grow beyond what they directly provide.
Babban Gona is an agricultural franchise based in Nigeria. This social enterprise provides small-scale farmers in rural areas with end-to-end services that improve farm yield and access to markets to sell their food products at fair rates.
Gulbarn, a traditional tea company, employs Alawa people in Alawa Country in the Northern Territory of Australia. The Alawa people manage and harvest the plants and are the tea plants’ exclusive providers for the social enterprise, Gulbarn.
Saving our planet
Many of the social enterprises we see cropping up today have their social goals rooted in environmental issues. The reason for this is because our planet is currently facing several crises. There’s plastic pollution, ocean pollution due to plastics, climate change, deforestation, global warming, environmental degradation from mining fossil fuels, and so much more to list. All these issues, combined, form the mission for many social enterprises.
A social enterprise with a social and environmental concern would direct its profits towards solution activities, such as clean up, protection and preservation, recycling, providing people with sustainable alternatives for products and energy, tree planting, and other activities to aid their social mission.
TerraCycle is a social enterprise founded in the US that offers national recycling solutions for hard-to-recycle waste streams. They provide both small-scale and large-scale solutions for schools, organizations, and communities. Most of their programs are free to join, but they offer other premium paid-for services. Members can also shop for their large selection of TerraCycle products.
This social enterprise is a well-known wine brand for its promise to “plant a tree for each bottle of Trinity Oaks sold.” Since the program began in 2008, Trinity Oaks has planted over 80 million trees and counting. As a commitment to social change, this social enterprise is tackling the global problem of deforestation.
Providing access to basic amenities for developing areas
In many developing nations, access to basic amenities is limited. These amenities include water, electricity, housing, and healthcare. While government structures may exist to provide for these needs, these structures may not be functional. A social enterprise can help in two ways. They can either offer these services at subsidized rates to ensure that most of their target users can afford them. Or, they build a social enterprise that realizes its profits from markets outside of the community and redirects the profits from said business to the community.
Communities lacking these basics can experience significant improvement due to any successful social enterprise’s social impact tackling these issues for them.
Solar Sister is a clean-energy social enterprise that recruits, trains, and enables women in rural Africa to start their own businesses. Their work provides affordable clean energy products to rural areas in Africa and offers economic benefits to the families and communities of the women who work with Solar Sister.
Microcredit and microlending
For most people who live in developed countries, access to credit is the norm. However, a significant portion of the world’s population has little to no access to credit. In Canada, about 83% of the population own credit cards. But in Brazil, only 27% do, and in Uganda, only 2%. This lack of access limits social and economic growth. Fewer people can start a business, get a university degree, pay for expensive medical procedures, and more.
This need drives another aspect of social entrepreneurship as a business model. We now have social enterprises with the social goals of providing microcredit and micro-lending services to communities that need such financial access.
Acumen started in 2001 with seed capital from the Rockefeller Foundation, Cisco Systems Foundation, and three individual philanthropists. This social enterprise is an investment company specifically created to support the poor’s business and people who serve poor/low-income customers.
This is a financial social enterprise established for the poor. Grameen bank, founded in Bangladesh, allows customers to access credit without collateral and other hurdles that usually disqualify poor/low-income people from receiving bank loans.
Many social enterprises adopt the giving back approach. In this case, the enterprise founders do not establish need-specific businesses that would serve a community or group. Instead, founders can establish a social enterprise in any industry and use the profits from the business(es) to tackle the social, environmental concerns included in their mission statement.
Mealshare is a social enterprise that donates a meal to an in-need youth whenever a customer purchases a meal from one of their partner restaurants.
Toms, a well-known social enterprise, has donated over 100 million pairs of shoes to people in need. The company claims to give away $1 for every $3 they make.
Mitscoots is an apparel brand established in the US. Every time a customer purchases this social enterprise, they donate an item of similar value to someone in need.
Better World Books is another social enterprise that contributes to its social impact through donations. For every book bought through Better World Books, they donate another book to someone in need.
These are just a few industries and the different ways social enterprises are choosing to fill different social and environmental needs gaps. Many other enterprises are doing similar work, such as Alison, a social enterprise that offers free courses created by world-class teachers.
- Social Enterprise Quotes
- 9 Tips to Staying Motivated Starting a Social Enterprise From Home
- How To Use Social Media To Grow Your Social Enterprise
- 3 Stories of Entrepreneurial Gen Z’s Changing The World
- How to use Quora to Build your Reputation & Grow the Reach of Your Social Enterprise
- How to Brand Your Social Enterprise Without Paying A Designer
Sources & References:
|Cheng, P, Ludlow, J. (2008). The Three Models of Social Enterprises. Creating social impact through trading activities: Part 1. Published by Venturesome.|
|Artur Steiner, Simon Teasdale, Unlocking the potential of rural social enterprise, Journal of Rural Studies, Volume 70, 2019, Pages 144-154, ISSN 0743-0167, https://doi.org/10.1016/j.jrurstud.2017.12.021|
|Li, Yong. (2017). A literature review on social enterprise. Research on Modern Higher Education. 3. 35-40. 10.24104/rmhe/2017.03.01006.|